Perspectives on the next recession
March 13, 2019
American Funds video transcript: “Where the U.S. stands in today’s global economy”
Will McKenna: Jared, I wonder if we can start with you and get your view on the global economy next year. Why don't you start with the U.S. and talk about where we are in the cycle, and then maybe cover the large economies around the world for us.
Jared Franz: Sure. So, as I think about the U.S. and where we are, heading into 2019, I like to think of the cycle since we began in '09. So, we went through the early cycle, the mid-cycle. I think we're now heading into the late cycle. And the late cycle's an important kind of a cycle marker because it usually implies higher cost pressures, higher wage pressures, rising rates from the Fed as you mentioned earlier. Also some profit compression and some rising imbalances in the economy.
So, I think that's where we're headed in 2019. The other thing we need to remember is that we're also heading into the middle part of the fiscal cycle. Now, we got a lot of fiscal stimulus in 2018 that was both on the individual and on the corporate side. We think we're going to get the apex of that stimulus at the end of 2018 into 2019. But as we head into the latter part of 2019, that's going to start to fade.
So, that's important to remember. And as that stimulus fades, so will economic growth along with that. And so, we think we've reached kind of this apex in economic growth, about 3% or so. And we think we're going to head to 2% to 2.5% by the end of 2019.
So, that's where I think we are in the economic cycle for the U.S. In terms of non-U.S. — Europe and Japan, let's say, some of the major economies — they've also seen much slower growth in 2018 than we've been expecting. Part of the Europe case is due to the manufacturing slowing. And that's related to China, another major economy that has seen some slowing.
And so, as we look at 2019 and we aggregate these economies together that represent a large component of global GDP growth, we're looking at a slightly slower 2019 than 2018. Nothing in the recessionary kind of category, but just a slowing versus what we saw in 2018.
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